Workers’ compensation claims are a lot like poker, you’ve got to know when to hold ‘em and know when to fold ‘em. If you don’t know when to walk away, you’ll eventually want to run. Accurate valuations and cost-effective risk analyses of cases-in-chief will define the success of any claims department because they will steer you clear through the minefield with as few detonations as possible.
So, where do we start with a proper claim valuation of a case-in-chief? Let’s start with the basics, which we can apply to any claim (new or old). After that, let’s work our way into more detailed valuation analyses.
What body parts are we talking about? I am not a doctor, but I do know that comorbidities and contraindications aren’t good things for patients. Identify these at the outset.
Average weekly wage (AWW)
You need this number to perform an accurate analysis. If you don’t have one on file, take a guesstimate based on the information available to you and note your final valuation with an asterisk. The asterisk will serve as a reminder that “this calculation was performed with an average weekly wage of $600/wk.”
Permanent disability (PD)
Permanent disability is the monetary value assigned for loss of use of each body part. If it’s a new claim, you can guess the likely PD value by comparing your claim to previous claims with similarly situated applicants. If it’s an older claim and you have final reports from your doctors, just rate your whole person impairment into PD using the Permanent Disability Rating Schedule. If you don’t know how to rate:
- Bradford and Barthel has an Internal Rating Department with experts who know the AMA Guides backwards and forwards.
This is where you also apply any apportionment. If a person has a history of pre or post industrial contributing conditions, you’ll want to apply that to your permanent disability calculation, regardless of whether it’s an estimate or a final rating.
Temporary disability (TD)
Temporary disability is the monetary value of the person’s lost-time away from work until a doctor declares them “permanent and stationary” and at “maximum medical improvement.” Usually this is 67% of the person’s average weekly wage, unless it is so high or so low it hits one of the statutory caps. If the person is working part time because of their work-related injury, then they are likely receiving (or are due) temporary partial disability (TPD). If the applicant is not working at all because of their work-related injury, then they are due temporary total disability (TTD).
Future medical care
This one sounds very simple, but it can actually get quite complicated. Take a look at the compensable body parts and determine what care the person will need in the future. Try to identify any overlaps, such as orthopedic evaluations or medications that can apply to multiple compensable body parts. Secondly, identify any sneaky cost drivers, such as surgeries, high-priced medications, or intensive care. Try to think of what this will cost the applicant after their settlement, in a workers’ compensation, group health, and uninsured settings. I recommend that you assign a monetary range for this section. Keep these extra tips in mind when calculating and negotiating future medical care:
- One benefit to settling future medical care via compromise and release is that the applicant gets to control their own future medical care, rather than go through the workers’ compensation utilization review system.
- Is the person entitled to Medicare or likely to be entitled to Medicare within the next 30 months? If so, you’ll want to get a Medicare set-aside to protect Medicare’s interests. That’s important because that means a vendor and/or the Centers for Medicare & Medicaid Services (CMS) will be determining how much future medical care will cost. Sometimes that comes in lower than what we anticipated, sometimes it comes in higher.
- If it’s a new claim that was timely denied, defendants can still think of future medical care from a lien perspective. As you know, Southern California has a number of doctors willing to treat on a lien basis. For some cases, racking up numerous liens on a case that eventually turns compensable can risk outweighing the case-in-chief. Liens are a factor you’ll at least want to take into consideration, as it could dictate an important part of your overall exposure.
Supplemental job displacement benefit voucher
More commonly known as “the voucher” or the “SJDB,” this one will cost you $6,000 on any dates of injury on/after 1/1/13, and up to $10,000 for dates of injury prior to that. If you’re confused about what voucher applies and why it applies, here’s a handy link that will refresh your recollection in just a few short minutes.
Liens against compensation
Does the person have any liens from the state or federal government or personal lenders? If so, you’ve got to take these into consideration by making sure that you take credit for these from the settlement. The most common one you’ll hear about are liens from the Employment Development Department, which can be construed as TD or PD (and a credit can be taken accordingly). Child support liens are another one that you won’t want to ignore, as they intend to get their money one way or another. Various lenders will also loan applicants money against their case-in-chief, often with exorbitant and predatory interest rates. If you receive a notice from one of these lenders, definitely factor their lien into the final settlement.
Costs of future discovery
Let’s say you don’t settle. How many med-legal evaluators are you going to need for those body parts that we discussed earlier? Keep in mind that some qualified medical evaluators are cheap, while others will bill you as much as they possibly can, even if it means delaying the case. Will the parties need to involve outside vendors? Are surgeries likely? Are there comorbidities and contraindications at play? This is a very subjective part of the analysis, but it can often be the most important when determining whether a settlement is cost-effective.
EXPECTED VALUE AND OTHER FACTORS
Now that you’ve got your basic valuation, it’s time to consider these complexities: If you’ve got an affirmative defense that could defeat the claim in its entirety, apply that to the entire case-in-chief. For instance, let’s say that your valuation came out to $50,000, and the entire case hinges on a classic “my witness versus their witness” situation. If both witnesses are equally credible, then you might call it a 50/50 chance of success/risk of ruin. Multiple the $50,000 by 0.50, and you get $25,000. $25,000 for Compromise and Release is a fair valuation of that case.
In poker, one uses these multipliers to determine whether to fold, call, or raise; which are called “pot odds.” Here’s another hypothetical:
- Let’s say I’ve got a 50% chance of winning, based on the known cards to the table.
- There’s $1,000 already in the pot.
- I’m being asked to call $50 in the final stage of betting, and I am the final person to act.
This factual scenario is giving me 20 to 1 odds (i.e. I must pay $50 to win $1,000). We know that our chance of winning is 50%, or 1 to 1 based on the known cards. This is known as a positive “expected value” situation, because I have a 50% chance of winning 20 times the amount I’m being asked to call. If we were to run this hand 10 times, the math says that I would win 5 times, which would mean that I’d have won $5,000 and lost $250 for a total profit of $4,750. Put yourself in the applicant’s shoes. Are they getting 20 to 1 odds on a case where they have a 50% chance of winning? If so, they will probably reject a low value settlement. Conversely, if you’re the defendant and you have a decent probability of winning, consider these factors:
- Are there other people at the workplace who will also file claims? How many? If you anticipate many copycat claims, a high-dollar settlement could encourage more copycat claims with high expectations and destroy your expected value over time. Similarly, if you prevail on your defenses, that could actually deter coworkers from filing claims.
- Revisit your odds of winning.
- Most cases turn solely on the facts. Is the evidence actually there to help you win? Take a second look at your witnesses and your evidence.
- Consider the more subjective factors, such as venue, who your adversary is, who the doctors are, etc. For instance, if your case hinges on a medical evaluator who loves/hates one of the parties, that is going to impact your odds of winning.
- Take into consideration your reserves situation. If your portfolio is having a great rate on investment (ROI), then maybe settling for a slightly higher sum earlier to avoid future costs will be offset by that great ROI. Just remember to diversify and avoid putting all your eggs in one basket. And if someone is promising a neverending ROI of 10%, keep in mind that’s untenable. Economic downturns and recessions do happen, and that false promise of 10% a year in perpetuity will eventually have damaging consequences.
Got a legal question regarding case valuations or any other workers’ compensation related matters? Feel free to contact John P. Kamin. Mr. Kamin is a workers’ compensation defense attorney and partner at Bradford & Barthel’s Tarzana location, where he heads the firm’s Sports Law Division and watches the recent legislative efforts. Mr. Kamin previously worked as a journalist, where he reported on work-related injuries in all 50 states. Feel free to contact John at firstname.lastname@example.org or at (818) 654-0411.
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